For India, China-backed lender may be answer to coal investment

A senior Indian official told Reuters the Asian Infrastructure Investment Bank (AIIB), sponsored by China, is expected to allow funding of coal-fired power plants that the World Bank has almost totally blocked.

“When you have 1.3 billion people starved of electricity access and the rest of the world has created a carbon space, at this point denying funding is denying access to cheap energy,” said the official, who spoke on condition of anonymity.

India sits on the world’s fifth-largest reserves of coal, and the commodity generates three-fifths of India’s power supply. But the demand for electricity far outstrips supply, and according to data compiled by the World Resources Institute in 2012, proposals have been made to set up 455 new coal-fired plants in the country.

Research house Integrated Research and Action for Development said earlier this year India needs to invest $250 billion in the power sector by 2017.

Since 2013, the World Bank’s energy strategy limits the financing of coal-fired power plants to “rare circumstances”, making it part of a push by U.S. President Barack Obama to fight climate change.

“We have got to redouble and redouble again our efforts at fighting climate change,” World Bank President Jim Yong Kim told Reuters in an interview in Seoul on Wednesday. “And our way of doing it is to just do everything we can to avoid coal.”

Kim has said the World Bank has not signed any agreements to support coal-based power plants since he took office in July, 2012.

The Asian Development Bank (ADB), a multilateral lender dominated by the United States and Japan, says it will selectively support coal-based power projects if cleaner technologies and other safeguards are adopted. Last year, it approved a $900 million loan to help build a 600 megawatt coal-fired plant in Pakistan.

The articles of agreement of the AIIB, which will include its lending strategy, will not be finalised until the end of 2015, Chinese officials have said.

Kim said he understood India’s position on coal-fired energy projects, but the World Bank’s stand would not change.

“We have to be sensitive to the fact that climate change is something that, India for example, has contributed much less to than the United States or Europe or other countries and what they’re saying is, that we need energy,” he said.

“And what they’re saying is: that we need energy now so that our economies can grow, so that we can provide jobs for our people,” he said.

“Now we won’t be engaged in coal unless there’s absolutely no other option, and we’ll see where they go,” Kim said.

SIGNED UP DESPITE RIVALRY

India signed up late last month to be a founder-member of the AIIB, and is also a member of a new development bank from the BRICS group of emerging markets – Brazil, Russia, India, China and South Africa. The cooperation comes despite traditional rivalry – the two Asian giants fought a brief war in 1962 and have overlapping territorial claims along their Himalayan border.

The Indian official, who was involved in the AIIB decision, said the funding of infrastructure in the region by the World Bank and the ADB was inadequate.

“Had the World Bank resourced its capital base, had the World Bank done reforms that are due, and ADB also resourced the capital base, perhaps there would have been no need to set up the (new) bank,” the official said.

Experts say the Asia-Pacific region needs about $1-1.5 trillion per year to fund infrastructure needs. The World Bank’s total lending to East and South Asia was about $16.6 billion last year. At the end of 2013, the ADB’s lending amounted to $21.02 billion, including co-financing with other development partners.

“The infrastructure financing gap in Asia, in emerging Asia, is so big and even the existence of ADB, World Bank, and other multilateral development banks cannot fulfill that demand,” Indonesian Finance Minister Bambang Brodjonegoro told Reuters last week. “AIIB will be a welcome newcomer.”

The AIIB was launched at a ceremony in Beijing at which 21 nations were represented, but Australia, South Korea and Indonesia were absent. Australia and South Korea were pressured not to join by the United States, local media in both countries said, but Indonesia said it did not attend because its new government had not taken office.

On Tuesday, Brodjonegoro said Indonesia could join the AIIB as early as next week.

Analysts say Washington’s fears about the AIIB are that the new bank will encroach on its role in providing funds to the region through Western-backed institutions and that it will allow China to assume leadership in Asia.

“Don’t imagine for a moment that the AIIB is just about economics,” said Hugh White, professor of strategic studies at Australian National University.

“Asia really does need more infrastructure and there does need to be some new funding mechanisms, but it’s also an opportunity for China to build its political and strategic leadership role in Asia.” -Reuters